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Tackling Fraud In Financial Sector: Continued Vigilance And Experience Exchange

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Today, cyber attacks are without exaggeration the bane of modern society, which is diving ever deeper into the digital dimension. In the World Economic Forum’s Global Risks Report 2018, this threat is ranked as the third most likely global risk (followed by data fraud or theft, which were ranked fourth) and the sixth in terms of impact. Such an assessment implies the need of large-scale investment in cyber security (in particular in the financial sector) and international partnership that will allow accumulating resources for effectively tackling this threat.

In financing, the IT-security issue plays a special role – potential damage here is calculated in millions of dollars, banks thus presenting a very seductive target for fraudsters. Further, as stated in the IMF working paper Cyber Risk for the Financial Sector: A Framework for Quantitative Assessment, this sector possesses a number of features making it particularly vulnerable. These include, among other things, very high interconnection of networks providing the basis for banking system functioning, as well as use of the so-called legacy systems in many institutions – systems that no longer meet the current needs but are still in operation due to the difficulties related to replacing them as their design does not provide for the possibility of their restructuring.

In its turn, technology is moving forward: innovations in tap-and-go payments have contributed to a remarkable decrease in security concerns around contactless fraud. Across Europe, this decline amounted to 24 percent, with the confidence boost being the highest in the Netherlands, Spain and Great Britain, where the concern level dropped by 41, 33 and 31% respectively, notes Paolo Battiston, Executive Vice President Digital Payments & Labs Europe at Mastercard.

It is worth paying attention to a number of technological solutions that are considered especially efficacious when it comes to protecting financial institutions from outside cyber attacks. In particular, these include next-generation firewalls, or NGFWs, that represent integrated network security platforms where traditional firewalls are combined with alternative security solutions for traffic filtering – Deep Packet Inspection (DPI) systems, Intrusion Prevention Systems (IPS) and others.

On the other hand, the ‘pink glasses’ risk persists – unreasonably optimistic view of financial sector security. “The threat is real both in Russia and in the world in general”, emphasizes Vyacheslav Kasimov, Director for Information Security at Credit Bank of Moscow. “This is confirmed by what we see in the news as well as by our own statistics. Attacks on banks have not become less frequent. The upward trend in the number of attacks remains in place”. Besides, he notes, real capabilities of criminals significantly outperform the response of financial organizations in terms of efficiency. To stop at today’s level of security would therefore actually mean to sign one’s own death warrant.

Another way to enhance the finance industry resistance to cyber threats, alongside with direct investment, is international cooperation and exchange of know-how. Experience of finance service companies in the West in data security and fraud prevention, for example, could be successfully scaled in Russian realities. Today, Russian banks, including CBOM, are developing their own software having all necessary functions – this soft is mostly designed for monitoring and fraud detection. Meanwhile, the technologies that are widely used abroad may also appear a great asset: “An opinion that basic rules worked out on the basis of international companies’ experience can find no application in Russia is erroneous. We are speaking of high-quality instruments one just needs to be capable of using”, believes Vyacheslav Kasimov.

In choosing technologies for fraud prevention (including in the financial sector), one always needs to bear in mind that the assault techniques applied by cyber criminals are continuously improved. For instance, despite the use of endpoint protection solutions (EPP), many companies still fall prey to compromise. A really up-to-date endpoint protection has to be adaptive to the ever-changing threat landscape and shall include features that make it possible to detect complex attacks targeted at endpoints, as well as be able to promptly respond to incidents recorded – the tasks assigned to EDR (Endpoint Detection and Response) technologies. In several banks in Russia, the EDR-solution is currently being used in test mode, and the chances are high that it will be soon fully adopted as an efficient means of thwarting cyber attacks.

In the light of consistent evolution of the tools used by cyber fraudsters, technological upgrading of financial institutions becomes increasingly more costly. At the same time, there is much more at stake here, too. According to the 2017 Cost of Cyber Crime study undertaken jointly by the Ponemon Institute and Accenture, it is companies in financial services where the cost of cyber crime is the highest. Cutting back on security is a thankless job, any investments thus being quite justified (UK Finance, a trade association for the UK banking and financial services sector, states that investments in advanced security in the finance industry prevented £984.9 million in attempted unauthorized card fraud last year), whereas international cooperation, given the global nature of cyber threats, should contribute to the widest possible spread and application of solutions developed.

 

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2022: A FUTURE FOR SIMPLE AND FRICTIONLESS CROSS-BORDER PAYMENTS

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Dima Kats, CEO, Clear Junction

Dima Kats, CEO, Clear Junction

 

Even after 18 months of stuttered lockdowns, businesses are still learning how to navigate the effects of the pandemic. However, in 2022 there is a lot more certainty surrounding how events in the future might unfold compared to the start of the series of lockdowns in 2020-2021 – when businesses had to accommodate ever-changing rules.

Ironically, the coronavirus pandemic may be a catalyst for a more globalised world in the near future, which will directly and quickly affect the world of finance and payments.

 

Activity in the fintech sector.

Fintech development flourished over the course of the pandemic. Reducing the need for face-to-face interactions was essential for maintaining economic activity during lockdowns. Many of the trends that are driving the increased economic activity in the fintech sector are a direct result of social distancing: the rise of digital payments, increased work-from-home arrangements, retailers diversifying their payment channels, and an increased use of autonomous finance. As a result of these trends, there has been a large number of fintech start-ups emerging.

Due to the growth of the fintech sector in the past year, there has been a significant increase in demand for industry professionals, and the effects of that demand will be playing out into 2022. This is mainly due to employees being re-trained during the pandemic for new roles, creating a more skilled and mobile workforce.

 

Cross-border payments.

There are currently three trends that are reshaping cross-border payments, and in a sector that is predicted to reach over $156 trillion in 2022, staying ahead of those trends may prove to be a lucrative decision.

The first trend is the changing consumer demands. Customers are less inclined to pay for banking services while still expecting them to be fast and intuitive. Alternative service providers that can offer the customer more of what they want while being faster, cheaper and more transparent will gain a competitive advantage over banks.

The second trend is the increase in trade with emerging markets. As the share of international transactions involving emerging markets grows, cross-border payment solution providers are focusing on these markets. Growth in these emerging markets is bolstered by free trade initiatives, while some countries have established protectionist policies that slow them down. Growth in emerging markets is expected to be at around 11% per year, while the overall growth of cross-border trade is estimated at just 5% per year.

The third trend is that the accessibility of mobile phones has increased. As people gain a larger online presence, there is more opportunity for people to make online payments. The percentage of mobile phones ownership among adults in emerging countries is at 83%, compared with just 62% in 2014. This figure is expected to increase even further, and subsequently increase the number of e-payments being completed.

 

Cryptocurrency in 2022.

We expect to see cryptocurrency develop even more mainstream appeal as it becomes less speculative and more widely accepted. This will cause banks to increase their investment in fintech, in conjunction with governments introducing new regulations to ensure that transactions that involve both traditional currency and cryptocurrency are safer. One of the most tangible effects of the pandemic was the need to use online payment solutions. In the same way, people are beginning to trust and realise that cryptocurrencies may be a feasible payment solution even in the post-pandemic world.

Consumers are increasingly dependent on digital devices, but over half of them prefer to make online purchases over a computer than a mobile device. Mobile screens on smartphones or tablets are smaller than desktop monitors, which leaves users feeling discouraged and less secure while shopping compared to completing transactions over a desktop.

Mobile shopping or M-commerce has benefitted from several innovations that encourage users to finish payments on their phones: instant checkout solutions like Apple Pay, the use of augmented reality to show consumers the products they are buying, and sites building mobile-friendly user interfaces. Due to these innovations, Insider Intelligence predicts that shoppers will inch closer to using their mobile devices as a preferred channel in the next few years.

 

Open banking and the need for collaboration.

As the industry grows and becomes more diverse, there will be an increasing need for partnerships and collaboration to take advantage of the emerging opportunities.

One direction we’ll be seeing them in will be in the form of open banking. Traditional firms are beginning to see open banking as something more appealing due to the opportunity for partnerships. The rise of alliances within the finance industry began to take place long before the ongoing pandemic. Currently, over 30 partner banks represent hundreds of fintech  relationships and financial services. We think firms who adopt open banking early and secure partnerships will reap the rewards compared to their competitors.  firms who adopt open banking early and secure partnerships will see themselves reaping the rewards compared to their competitors.

2022 will likely be the year that open finance starts reshaping financial services and the year that banks savvy up to the opportunities that open finance represents. With regulators in the EU and UK proposing measures to heighten data sharing principles across a broader set of financial products, 2022 will see many banks experimenting and evolving their business models toward a more open, collaborative platform approach.

The multiple challenges to the finance industry over the last year have highlighted the need for fresh thinking, to face the future with strength and confidence. Fintech partnerships can create a significant opportunity for levelling the playing field, streamlining internal processes, adding technological capabilities, and improving the end customer experience.

Companies like Clear Junction offer businesses a mix of these benefits and opportunities at one time. Continued and original collaboration and partnerships between fintech companies and banks are essential for the future of the financial services industry and the finance sector. The digital marketplace is indeed growing, and the future belongs to the financial institutions that can stay ahead of the curve.

I think we need to add some context about the Fintech industry over the last 12 months, and how the pandemic has actually affected the industry. Need for innovation etc etc how much money has been put into it etc. And then lead on the predictions around talents and retraining. Otherwise this byline reads as just a list of predictions, without adding the relevant context.

 

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CHRISTMAS IS COMING: WHAT MAKES A GREAT ECOMMERCE STRATEGY FOR THE FESTIVE SEASON?

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Christmas Gifts

By Laura Lough, Director of Ecommerce Operations at Digital River

 

There is no doubt the year 2020 presented an array of economic and personal challenges worldwide. But, there was a silver lining for the world of ecommerce. By necessity, the pandemic encouraged people to shop online, which grew the ecommerce industry rapidly. The outlook for 2021 is cautiously optimistic. While consumers may react to lifted social distancing restrictions with exuberant spending, they could also continue to hang on to their money over fear COVID variants might cause more economic upheaval during the winter of 2021-22. Experts are predicting another year of growth, but not at the breath-taking rates seen in 2020.

Whether the growth rate surges or stabilises, one thing is certain: new shopping behaviours learned by consumers because of COVID are here to stay. Contactless payments, mobile wallets and social spending all saw new consumer use in 2020, and consumers who appreciate their convenience aren’t likely to abandon those new habits.

There are some fundamentals that eCommerce providers must take onboard now if they want to have a successful holiday season.

 

Meet your customers’ high expectations

Gone are the days when fulfilment and supply chain were little-known ecommerce topics. Shipping delays due to a surge in ecommerce demand in 2020 as well as the Suez Canal blockage in March of 2021 brought fulfilment issues to the front page, literally.

Adding to the challenges are current lorry driver shortages and supply chain disruptions. The upshot is supply chain issues will continue to challenge ecommerce brands. Those ramping up closer to the holidays are likely to face some headwinds. However, whether you’re ahead of the game or playing catch-up, you can develop fulfilment strategies that will serve you well in the years to come, as supply chain issues are not going away anytime soon.

Laura Lough

Businesses can use their data to intelligently predict consumer behaviour, allowing them to be ready for surges in demand for different products and locations. Avoid costly returns by giving the shopper an overload of information such as product images, comparison charts and reviews. To simplify reverse logistics and appeal to your customers, consider partnering with third-party drop-off sites for brands that don’t have physical stores.

Most critically, brands must communicate clearly, effectively and transparently with customers. They cannot expect sympathy from customers if fulfilment issues outside of their control delay delivery. Customers have come to expect shipping that fulfils their needs and desires—not the needs of retailers.

 

Accessibility for all

Many ecommerce marketing best practices that were true pre-COVID will continue to hold true this season. Retailers must develop unique customer acquisition strategies and marketing collateral for each market they enter — translated content isn’t enough. They should also use local channels, and messaging should remain cohesive across channels.

It’s critical to incorporate social buying into your marketing strategy as more customers are engaging with brands on their preferred platforms, which are increasingly social. Mobile commerce is another critical component to your marketing strategy, and it’s important to develop an optimised and responsive mobile experience for your customers.

Another important consideration is making sure your D2C platform is accessible to those with disabilities. In addition, brands need to pay attention to how COVID has affected various areas of the world, so tailoring your messaging to local realities is critical.

 

Payment strategies as a tool for business success

Payment systems are so important for brands that they should constitute a strategy in and of themselves, rather than just a back-office tactic. Over the pandemic several payment systems have become business-critical:

  • Digital Wallets: Consumer use of digital wallets surged during the pandemic. Chinese shoppers made the bulk of digital wallet purchases. In the US, digital wallet usage was up nearly 24% over 2019 numbers.
  • BNPL: Buy now, pay later (BNPL) is another payment method that is quickly rising in popularity. Brands offering BNPL have reported a 45% increase in average order value when customers pay in four instalments.
  • Mobile: Consumers will continue to rely more heavily on their smartphones to make purchases in 2021 and beyond. It’s critical for brands to optimise the mobile experience with payment methods that allow shoppers to pay with one touch of a button rather than entering a credit card number.
  • Direct Debit: Direct debit is another payment method that brands should consider adding to their online store. In this scenario, which is most popular in Europe, the retailer withdraws money directly from a consumer’s bank account.

 

Lean on tech

Underpinning every aspect of an eCommerce strategy is data. Businesses must leverage their data by developing a comprehensive customer-centric system that includes the entire customer lifecycle, including search, payment methods, and sales and shopper support data.

eCommerce providers can boost conversion rates, improve customer experience and reduce false declines by using a local payments processor that understands each market you’re in. Ensure that your payments partners are using retry logic to automatically route payments in a way that maximises the likelihood of authorisation.

Retailers simply must prepare well in advance for a surge in traffic to their platforms. If 2020 is any indication, the number of shoppers transacting through your platforms at any given time can vary wildly. That’s why it’s critical to test your system well ahead of time to ensure it can handle the load and make the adjustments early. More than any time of year, a failure to prepare spells trouble.

Finally, companies should select their partners carefully. They should look to work with back-office experts with specific tech and market experience. Appropriate partners can facilitate your brand to deliver tangible results this holiday season, ensuring you finish the year with a bang.

 

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